FATCA /CRS reporting best practices

By John Leahy Senior Product Manager
April 6th 2022

5-point guide to FATCA/CRS compliance

The 12th anniversary of when the US Foreign Account Tax Compliance Act (FATCA) became law has just rolled around. Not that many financial institutions will be celebrating.

FATCA and the Common Reporting Standard (CRS) it spawned are proving potent weapons in jurisdictions’ war against tax evasion. But the reporting obligations impose a heavy operational cost on financial institutions. And they affect a whole slew of firms, from banks and trust managers to custodians, investment traders and fund management companies.

With firms’ regulatory reporting responsibilities continuing to build in multiple other areas, alleviating the FATCA/CRS workload and associated expenses should be a priority focus. Strengthening compliance to avoid the significant penalties that can ensue from any reporting failings is a further pressing incentive.

Best practices in FATCA/CRS reporting

The goal is to automate your FATCA and CRS reporting and remediation as much as possible. But what does that look like in practice?

  • AEOI-compliant regulatory report filing

Automatic Exchange of Information (AEOI) reporting capabilities are critical to FATCA/CRS compliance.

Reports need to be submitted in an XML schema, but the format of the XML message, document and account reference identifiers required by competent authorities differ significantly. Validating and converting source data into an XML format ready for submission to the various regulatory portals for FATCA and CRS purposes, and keeping pace with the ever-changing standards, is complex and time consuming. Errors can result in queries, rejected files and penalties.

Systems that can generate reports automatically in a filing-ready state for the different jurisdictions alleviate the risk of non-compliance, while removing the need for and expense of employing conversion tools or third-party reporting services.

  • Customer onboarding

Determining clients’ nationality, residency and tax status during onboarding has a massive impact on the compliance process. Getting this right at the start will streamline downstream workflows, ease the remediation burden and save clients from paying unnecessary withholding taxes.

Efficient client onboarding requires advanced investor and beneficial owner screening capabilities able to capture and track complex, multi-level ownership structures to identify and verify underlying customer and beneficial ownership identities.

A flexible rules engine can help manage the extensive FATCA/CRS documentation and data requirements to ensure all the correct information has been captured. The documentation demands can be further eased with a centralised document repository. It enables static data and documents to be reused across regulations and jurisdictions, minimising duplication and the need to contact investors multiple times.

  • GIIN/TIN validation

Identification and documentation requirements vary between jurisdictions. So while some jurisdictions consider the capture of a Tax Identification Number (TIN) mandatory, others don’t even issue them. It’s important therefore that FATCA and CRS forms are populated correctly with up-to-date, validated TINs and Global Intermediary Identification Numbers (GIIN). Enabling validations to be modified by system users on the fly will help firms meet jurisdictions’ specific rules.

  • Indicia checks

Indicia such as place of birth, citizenship, current address and phone number are used to identify clients and determine their FATCA/CRS tax residency status. Indicia tracking – backed by systematic logic to determine where any curative documentation is required – keeps those FATCA and CRS statuses up-to-date on an ongoing basis. System audit tables able to track any actions taken will allow for easy review or investigation.

  • Tax form validation

The collection, analysis and validation of up-to-date ‘Self Certification’ for CRS and ‘W’ forms for FATCA is needed to determine client tax residency and identify indicia. Offline checklists that cannot be scaled add a huge burden to businesses.

Electronic collection and validation of self-certifications and tax forms enable financial institutions to move away from manual review methods. Automation ensures forms are populated correctly in line with local tax laws and provides institutions with seamless, transparent, fully auditable processes for the lifetime of the entity being administered. If a change of circumstance or expiration date is recorded, profiles should be automatically put into review status for users to action.

The ideal solution encompasses case management, email capture, documentation and SLA management in one single user experience. Modern application architecture allows workflows and other endpoints to integrate with client-facing applications such as investor or fund manager portals to further smooth the process.

Sustainable compliance

The complexity of inter-jurisdictional reporting requirements and multitude of data points financial institutions need to track make FATCA and CRS compliance a painful and costly exercise for affected firms. An automated environment delivering best practice capabilities is the only sustainable solution.

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ABOUT DEEP POOL
At Deep Pool, we are dedicated to helping clients maximise their success. Deep Pool provides the industry-leading compliance software and deep consulting expertise financial institutions need to automate their end-to-end AML/KYC and FATCA/CRS reporting processes. Our team combines compliance experts, business analysts and software engineers to create a unique blend of industry know-how and experience, producing efficiencies, scalability and client servicing benefits that transform users’ businesses.

KURE, our flexible AML/KYC and FATCA/CRS reporting solution suite, supports all types of regulated financial firms, including banks, asset managers and service providers. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.

John Leahy
John has been with the Deep Pool Group since 2012. He drives product development, vision, strategy, and execution across a cross-functional team, serving 3 Fintech/Regtech products. John holds a Postgraduate Diploma in Product Management from Technological University Dublin.